Autumn Statement 2014 Review: Attack on goodwill tax breaks

If anyone was expecting a giveaway Budget before the General Election, they will be disappointed. The chancellor’s Autumn Statement represents a fiscal tightening over the next five years, with the objective of achieving a budget surplus by the end of the next parliamentary term.

 

Sole traders and partnerships who transfer their business to limited companies will no longer benefit from a valuable “tax break.” In the past, it has been possible to create goodwill on incorporation, and benefit from entrepreneur’s relief. The capital gains tax on the goodwill has therefore been charged at 10%.

 

From 3 December, these capital gains will be taxed at 28%. Alternatively, tax payers should still be able to use the existing claim hold over relief to avoid the tax charge.

 

In a separate measure, the government has also abolished the corporation tax relief available for companies on the amortisation of goodwill, where the goodwill is created on incorporation.  This will apply only to goodwill acquired on or after 3 December 2014. Companies already obtaining tax relief on goodwill recognised on incorporation will not be affected.